US doubts of recovery deepen

Hope that the US economy was recovering after a spring lull has been scuppered by the news that non-farm payrolls rose by only 18K last month, well below expectations. There was also a cumulative downward revision to jobs growth in the two previous months by 44K. Looking at this report in detail, the jobs picture in the US is actually fairly dire. Public sector workers are still being laid off, with another 39K joining the ranks of the unemployed in June; since the end of last year, 188K government workers have been laid off.

Worryingly, the pace of job creation in the private sector has slowed to a crawl, up just 53K in the latest month. Even more depressing was the result of the household employment survey (conducted separately from the payrolls version) which calculated that employment collapsed by 445K last month, the largest monthly decline since the final month of 2009. As a result, the unemployment rate is now back up at 9.2% - back in March, it was 8.8%. It would have been much higher, were it not for a 272K decline in the civilian labour force. The number of unemployed has now risen for three consecutive months, by more than 500K, and aggregate hours dipped by 0.3%. In response, the dollar has fallen back sharply, the EUR has spiked back through 1.43, and treasury yields have declined significantly. For policy-makers, the implications of these numbers are significant. Firstly, Washington will need to go easy on excessive fiscal restraint lest it tips the economy back into recession - that said, there seems very little risk that the two parties could get anywhere near agreeing on proper fiscal austerity as things stand. Secondly, for the Fed, any notion it may have had that the size of their monstrous balance sheet could be normalised (reduced) any time soon can be put firmly on hold. The US economy is clearly still in intensive care.